GST 2.0 Reforms Simplify Taxation and Boost Consumption
The Government of India implemented major reforms under GST 2.0 from September 22, 2025. These changes aim to simplify the Goods and Services Tax structure, reduce tax rates on many items, and resolve classification disputes. The reforms also target the inverted duty structure to improve business cash flow and enhance consumer spending.
Recent GST Rate Rationalisation
GST slabs have been restructured into mainly two broad rates—5 per cent and 18 per cent—along with a 40 per cent rate on sin and demerit goods. Over 375 items saw tax cuts. Essential goods, some medical devices, agricultural machinery, and hydrogen vehicles now attract 5 per cent GST. Industrial goods and most consumer durables fall under 18 per cent. Tobacco and related products remain in the highest slab with additional levies. The 12 per cent slab was mostly removed except for bricks, which retain a special composition scheme.
Addressing Classification and Inverted Duty Issues
The reforms resolved disputes on taxing similar goods differently, such as various types of Indian bread and popcorn. The government also tackled the inverted duty structure, where tax on inputs is higher than on outputs. While not fully eliminated, placing similar items in the same slab eases business pressures. However, some sectors like bicycles, fertilisers, and textiles still face inversion, affecting working capital and refunds.
Impact on Services and Consumer Welfare
Several service sectors benefited from rate cuts. Health and life insurance remain exempt. Hotels with tariffs below Rs 7,500 and wellness services like salons and spas now attract 5 per cent GST, down from 12 or 18 per cent. These changes aim to increase disposable income and stimulate household consumption, which could boost investments.
Ensuring Benefits Reach Consumers
The government is monitoring price changes post-GST rationalisation. Monthly data on 54 categories, including food, personal care, and educational items, will be collected for six months. This aims to prevent profiteering and ensure tax savings translate into lower consumer prices. Companies have already announced discounts and offers ahead of the reforms.
Streamlining GST Compliance Processes
GST 2.0 plans to improve registration, return filing, and refund procedures. The focus is on technology-driven, time-bound processes, especially for small businesses and startups. Pre-filled returns will reduce errors and manual work. Refunds, especially for exporters and inverted duty cases, will be automated. Amendments to the CGST Act will allow provisional sanction of 90 per cent of refund claims to ease cash flow issues.
Continuing Challenges and Industry Concerns
Despite improvements, some inversion problems remain, notably in sectors like manmade textiles and packaging. Input taxes remain higher than output taxes for certain raw materials. Industry groups have brought into light these issues, seeking further corrections. The government is expected to address these in future GST Council meetings.
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